China’s spot gold market sees boom, as prices surge over geopolitical tension
Published: Feb 28, 2022 06:20 PM
Photo: VCG

Photo: VCG

As global gold price surged following the Russia-Ukraine conflict, many Chinese consumers rushed to stores to sell their holdings, while others, following a pullback in prices, are buying more in anticipation of further increases. That has resulted in a significant boom in spot gold trade in China. 

"Some gold investors have come in to my shop to sell around one to two kilograms (kg) of gold recently," a Beijing-based gold trader surnamed Zhang told the Global Times.

Zhang is not the only gold trader across the country who has been witnessing a boom in investors selling their gold products following the surge of the safe-haven asset's global price amid escalating Russia-Ukraine tensions.

Dai Chongye, a business manager of a mall in Guangzhou, South China's Guangdong Province, said that an investor sold 11.2 kg of spot gold at the mall's trading point for a total of 4.2 million yuan ($660,000). 

The latest wave of sell-off came as the global price of gold climbed to its highest in nearly 18 months on Thursday, with the price of spot gold exceeding $1,970 per ounce. 

Analysts and industry insiders noted that the surge in the gold price has been significantly impacted by the volatile global environment, as investors are seeking gold as a safe option since it is relatively stable and can be used to hedge against larger risks. However, experts also warned investors to invest prudently and think long term. 

Booming transactions

According to Zhang, the normal price point for selling gold products has remained within the range of 350 yuan ($55.44) to 360 yuan per gram since the start of 2022, whereas the price for gold bars on Sunday reached 376 yuan per gram and 375 yuan for jewelry. 

Another Beijing-based gold trader also added that gold prices in China at one point almost hit 400 yuan per gram on the night when the Russia-Ukraine conflict escalated, though prices have been falling gradually since then. 

Even though some investors moved fast enough to take advantage of the temporary price spike, many customers are still debating whether they should take immediate action amid the price rise or wait for a little longer. 

Both gold traders confirmed with the Global Times that the number of investors selling gold or considering cashing in had been increasing lately.
"In my case, more consumers are showing interest rather than actually selling anything," said another Beijing-based gold trader. He added that some consumers feel they missed the earlier wave when the gold price reached almost 400 yuan per gram, and were hanging on for the next peak. 

As of press time, the global gold price had reached $1,908.35 per ounce, down from the previous key $1,970 mark. 

Analysts stressed that as gold remains a reliable safe-haven asset, the price usually picks up in the short term, especially when the international situation is relatively unstable. 

"When impacted by risk factors such as conflicts, global investors are more interested in the safety of gold rather than its increase in value," said Bai Ming, deputy director of the International Market Research Institute at the Chinese Academy of International Trade and Economic Cooperation. 

For instance, Zhang pointed out that gold price in 2019 was around 280 yuan per gram, which quickly climbed to a record high of 400 yuan per gram in 2020 when the world was unexpectedly struck by the COVID-19 pandemic. 

The price then dropped to around 360 yuan per gram in 2021 when vaccines flooded major economies and global production gradually found its way back to relatively normal levels, the recent outbreak of tensions in Eastern Europe has again led to a near record peak in spot prices. 

Lingering uncertainty

Looking ahead, analysts and industry insiders pointed out, the market still faces uncertainties, so investors should be cautious when rushing to cash in. 

"The risks for investing in gold are quite high, and the price for gold will usually fall sharply after reaching a new high," Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Monday, urging investors to make considered investment decisions. 

Dong emphasized that investors may face a greater risk than benefit if they are just hoarding spot gold with the hope of reaping record profits. 

Though some consumers are holding off on selling their gold in a bid to wait for gold prices to climb to the 400-yuan mark again, at least one Beijing-based gold trader remain unconvinced that prices will reach that level.  

Although the majority of investors have been selling gold products amid the price increase, a section of the market has also been looking to obtain more of the precious metal. 
For example, the sales of investment bars at a local department store in Guangzhou exceeded 680,000 yuan on February 23, the Guangzhou Daily reported. 

A gold investor surnamed Yin told the Global Times that as much as he is looking forward to see how the price changes moving forward, he will consider buying more. 

Meanwhile, as the US and several of its allies moved to intensify unilateral sanctions against Russia, including removing Russia from SWIFT, global capital markets still faces great uncertainty, which might further affect gold prices.